Keynesian model. Relative to Representative Agent (RANK) models, our framework introduces a precautionary-savings channel, as … households in both countries face uninsurable income risk, and a real-income channel, as households have heterogeneous marginal … propensities to consume (MPC). While both channels amplify the size of spillovers/spillbacks, only precautionary savings can change …

We estimate a highly significant price of risk that forecasts global stock and bond returns as a nonlinear function of … the CBOE Volatility Index (VIX). We show that countries' exposure to the global price of risk is related to macroeconomic … downside risk. Higher exposure to the global price of risk corresponds to both higher output volatility and higher output …